Princeton Review Stock Dips After First Public Offering

Princeton Review Inc. has taken its big admissions test on Wall
Street. Its scores didn't quite put it at the head of the class.

The well-known brand in test preparation completed its initial
public offering of stock on June 19, the first company related to K-12
education to go public in more than a year. The offering was priced at
$11 a share, at the low end of the range set by its underwriters, and
the stock promptly fell 14 percent on its first day of trading to close
at $9.50 a share.

Princeton
Review Inc.

Founded: 1981

Headquarters: New York City

2000
revenues: $43.9 million

Stock
range since June 19 initial public offering:$7.50 to
$11.10 per share on NASDAQ.

The stock, trading under the symbol REVU on the NASDAQ stock market,
dipped as low as $7.50 a share in the days to follow, but it has
rebounded slightly, closing at $9.30 on July 5. The initial public
offering of 5.4 million shares, or about 20 percent of the company,
raised $59.4 million.

Princeton Review was founded in 1981, and is best known for its
irreverent courses and books that help high school students prepare for
college-admissions tests such as the SAT. Its decision to go public now
stems from its major push into Internet-based services such as
Review.com, which offers online versions of its test-preparation
courses, and Homeroom.com, a service targeted at helping 3rd to 8th
graders prepare for state tests.

A company spokeswoman said executives could not comment on the IPO
last week because the "quiet period" required by the federal Securities
and Exchange Commission as part of the process had not yet expired.

In its stock prospectus, Princeton Review said that to "increase our
revenue growth, we will need to derive a substantial portion of our
future revenue from our Internet businesses."

Some analysts said that while the company's offering did not
overwhelm Wall Street, it was an accomplishment just to complete the
IPO when it has been more than a year since the days of high-flying
stock offerings, especially of Internet companies.

"The market is tough right now for any kind of new issue," said
Gregory Cappelli, an analyst who follows the education industry for the
investment bank Credit Suisse First Boston. "Princeton Review has a
good brand name. But one of the reasons it has struggled out of the box
is it is just a difficult market for IPOs."

Another concern, analysts said, was profitability, or Princeton
Review's lack of it. The company had a net loss of $8.2 million on
revenues of $43.9 million in 2000. For the first three months of this
year, the company racked up $2.9 million more in losses.

"We expect to incur operating losses and experience negative cash
flow for the foreseeable future," the company's prospectus states. The
losses stem from the costs of developing its Internet businesses, which
have yet to contribute much revenue, the company says. Princeton Review
has an accumulated deficit of $24 million.

"If you peel back the onion, they have built a lot of enthusiasm
around Homeroom.com and their admissions business," said Howard M.
Block, an analyst who follows education companies for Banc of America
Securities. "But they sort of diverted attention from their Princeton
Review test-prep business, where you haven't seen much growth over the
past few years."

Among the many "risk factors" discussed in its prospectus, the
company warns that its core business could be hurt if many additional
colleges and universities de- emphasize or eliminate SAT scores in the
admissions process, as the president of the University of California
system recently proposed doing.

Good News, Bad News

John S. Katzman, the 41-year-old founder and chief executive officer
of Princeton Review, has been a longtime critic of the
college-admissions tests. He started his test-preparation company just
after graduating from Princeton University, which is not connected to
the business.

His company, like its major competitor, Kaplan Inc., a unit of the
Washington Post Co., is seemingly reliant on the nation's obsession
with educational testing to stay in business. The prospect of even more
state testing as a result of the education bill now working its way
through Congress is likely good news for services such as
Homeroom.com.

So, looked at through one lens, Princeton Review is almost like a
new Internet company at a time when such business models are not in
favor on Wall Street. But looked at another way, it is an established
brand that stands to benefit from an increased emphasis on testing.

Mr. Block, suggesting that simply getting the IPO done amounted to a
passing score for Princeton Review, said that "the positive K-12
rhetoric overwhelmed the dot-bomb concerns."

Vol. 20, Issue 42, Page 8

Published in Print: July 11, 2001, as Princeton Review Stock Dips After First Public Offering

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